Things to Know Before Investing in the Stock Market

by Thomas on June 10, 2013

Everyone wants to feel secure with their finances. News here and there about recessions, bankruptcies, and other economic meltdown can surely make one feel scared and unsure of what the future holds. Thus, it is important to prepare ourselves financially for whatever need that may arise.

A lot of people believe that investing in the stock market gives your money more chances of earning profit. However, investing in these can be pretty tricky. A few preparations must be done before you can actually join the world of stocks. In this article, we will discuss a few important points to help you transition from piggy bank savings to stock market investments.

First things first, you need money to invest. Make it a habit to save. Like what Warren Buffet says, “Do not save what is left after spending. Spend what is left after saving”. Do not ever commit the error of putting all your money and everything you’ve got into a single stock market investment. Make sure you already have a stable and secure job and a savings account to turn to when emergency strikes. If you are going to use a family fund, consult with your family members and get their permission.

Once you are secure with a good paying job and you’ve put a relatively good amount in your savings account, you can now invest your extra money in purchasing stocks. Investing in the stock market is no easy thing. Just like in other things, you need to have knowledge of what you are getting into. Read. Study. Educate yourself with the rules of the game and understand how it works. Research on the companies you’d like to invest in so you don’t go into it blind. Find out how much starting investment you actually need to come up with. Are there investment types? How often do you need to put in money? When can you reap your returns? These are just a few of the things you must know the answer to.

When you think you’re ready, think some more. Are you in it for the short term or the long run? A longer investment means a lower risk. The faster you can get something out of it, the higher the risk it comes with. Remember, high risk, high returns; low risk, low returns. Also, as much as possible, invest the amount that you can afford to forego. Start small. Stock investment is a risky business so it would better to keep it conservative, at least while you are new to it. Once you get the hang of it and more or less know the ins and outs of the business, then you can take bigger risks.

After putting in your investment, make sure to keep track of what’s happening in the stock market. It doesn’t simply stop at putting in a certain amount of money. You have to monitor. Is your account doing good or bad? Visit the stock market page on the papers. Watch the stock market channel. However, do not obsess yourself with it. Do not panic at every fall. More importantly, do not make hasty decisions at every fluctuation. Everything’s part of the game and you just have to get used to it. If your investment has been on the down low for a long period of time, then maybe it’s time to regroup and rethink. It could be time to sell your stocks. If it hasn’t been doing well, then you might be forced to sell it at a much lower price than what you originally got it for. But that’s just the reality of it.

In order to be able to trade stocks and other capital market products like ETFs, bonds, options etc. you need to have an account at one of the stock brokerage firms. Following are reviews of established brokerage companies to help you choose: